Ahead of the open on Tuesday, railway transportation firm CSX Corporation (NYSE:CSX) will steam into the earnings wheelhouse to release its first-quarter earnings report.
Despite CSX stock’s poor price action during the past several months, the company is sitting on a strong fundamental foundation, having matched or bested Wall Street’s targets in all but four quarters in the past four years.
Digging into the numbers, the consensus is expecting CSX to post a profit of 45 cents per share, up 12.5% from 40 cents per share in the year-ago period. Revenue, meanwhile, is seen rising just 1.5% to nearly $3.1 billion in the first quarter.
CSX’s struggling coal business is expected to weigh on results due to low oil and natural gas prices, but increased shipping demand for crude oil and commodities is expected to offset those concerns.
In fact, some analysts on Wall Street feel that CSX could outperform current expectations. As a result, data from EarningsWhisper.com reveals that CSX’s first-quarter whisper number arrives at 47 cents per share – 2 cents above the consensus.
While short-term expectations are leaning bullish, Wall Street’s long-term outlook is more tempered. According to data from Thomson/First Call, the brokerage community has doled out 13 “buy” ratings, compared to 16 “holds” and zero“sell” ratings. Furthermore, CSX’s consensus 12-month price target of $37.50 represents a minor premium of just 12.8% to yesterday’s close.
Options activity, however, contrasts with the brokerage community’s short-term outlook. For instance, CSX’s put/call open interest ratio for March/April rests at 0.53, with calls nearly doubling puts among options set to expire within the next two months. That said, options traders are taking a cautious stance ahead of CSX’s quarterly report, with the April put/call open interest ratio coming in at 0.82, with puts finding a modicum of favor.
Overall, April implieds are pricing in a potential post-earnings move of roughly 4.7% for CSX stock. This places the upper bound at $34.56, while the lower bound lies at $31.44. On the downside, CSX losses should be contained by round-number support at $30, while a post earnings rally has the potential to push the stock above all of its short-term moving averages. Such an upside breakout could bring technical buyers to the table.
2 Trades for CSX Stock
Call Spread: While CSX trading in a low-expectations environment due to economic growth concerns, the shares have ample rally potential if CSX is able to provide solid guidance. Traders looking to take a chance on a CSX rally might want to consider the May $34/$35 bull call spread.
At last check, this spread was offered at 35 cents, or $35 per pair of contracts. Breakeven lies at $34.35, while a maximum profit of 65 cents, or $65 per pair of contracts, is possible if CSX closes at or above $35 when May options expire.
Put Spread: For those traders looking to jump on the bearish bandwagon, an Apr $31/$34 bear put spread also has plenty of potential. At last check, this spread was offered at $1.08, or $108 per pair of contracts. Breakeven lies at $32.92, while a maximum profit of $1.92, or $192 per pair of contracts, is possible if CSX closes at or below $31 when April options expire.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
